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Saudis kicking off major move into solar

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Saudi Arabia will take the first step to becoming a large-scale producer of solar power next year as it uses the private sector to build a first batch of solar parks.

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A steep increase in demand for electricity and rapidly falling prices for photovoltaic panels have convinced decision-makers in the kingdom to reduce their reliance on fossil fuel-based power generation, setting the scene for sustained investment in alternative energy.

"I am utterly convinced we will see the first procurements of solar [independent power producers] in the first quarter of next year," said Paddy Padmanathan, the chief executive of Acwa Power, the largest private Saudi power provider.

King Abdullah City for Atomic and Renewable Energy (Kacare), the government body responsible for alternative-energy policy, is working on a renewables strategy and is expected to finalise this in next year's first quarter. Analysts at Bloomberg New Energy Finance believe that an initial target could be up to 5 gigawatts.

The first tenders to the private sector will amount to about 500 megawatts, with contracted capacity set to rise rapidly, said Mr Padmanathan.

By 2103, Saudi commitment to solar power could reach 20 gigawatts, he said.

The rise of solar power will proceed in tandem with a move into nuclear energy, and by 2013 the kingdom could have signed off on nuclear power projects with a generating capacity equal to its solar power capacity, Mr Padmanathan said.

Whereas the government will farm out responsibility for building and maintaining solar projects to private operators as so-called independent power projects, it will initially maintain control over nuclear projects, with public-private partnerships coming in at a later stage.

"So as I look to the future in Saudi, I progressively see more and more base load being filled with nuclear and more and more peak load being filled with renewables, and the middle bit being oil and gas, and more of it being gas than oil," said Mr Padmanathan, whose company will participate in the bidding for future solar and nuclear independent power projects.

Saudi Arabia is paying a heavy price for its continued reliance on oil to generate electricity. Its power plants consume 800,000 barrels a day of oil equivalent, Ziyad Al Shiha, the executive director of Saudi Aramco Power Systems, told reporters in May. With the price of crude above US$100 a barrel on international markets, the opportunity cost is high, making investments in alternative sources of power more attractive.

In addition, the cost of solar power has come down; a supply glut arising from China's input of cheap solar power panels into the market has halved prices within a year. Saudi solar plants will be able to take advantage of the country's long hours of strong sunshine.

"If you compare a medium-sized fuel oil or diesel plant, we are already practically at parity," says Jose Alberich, a partner at AT Kearney.

Saudi Arabia's need for energy diversification is born of the rising demand for electricity, as an increasingly urbanised society clamours for a higher standard of living. Kacare estimates that peak capacity needed in 2030 will amount to 120 gigawatts. Of this, 35 gigawatts will be generated by solar arrays, says the research centre.

"If demand continues to grow at this pace, without changes to the generation mix, the domestic consumption of oil will be unaffordable by 2030," says Mr Alberich.

Kacare is not alone in predicting huge investment in solar energy. Ali Al Naimi, the Saudi oil minister, said in June that Saudi Arabia planned to equal the energy created by its crude exports with solar energy, adding that by 2020 the country would have the potential to satisfy the world's electricity needs four times over.